5 Year End Tax Tips

 

Your Weekly Tax Tip

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5 Year-end Tax Essentials
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Before 2019 comes to a close, take some time to review these essential items to ensure you are not missing something that could cause tax trouble when you file your tax return:

1. Take required minimum distributions (RMDs). If you are age 70½ or older, you need to take RMDs from certain retirement accounts before Dec. 31 to avoid a 50 percent penalty! This includes most IRAs (except Roth IRAs) and 401(k)s. Your annual RMD is calculated by dividing the prior Dec. 31 balance by the life expectancy factor provided by IRS tables.

2. Watch for your IRS PIN. If you are a victim of IRS identity theft, you will be mailed a one-time use personal identification number (PIN) as added security.You can expect to receive it in the mail sometime in December. Save the PIN as it is required to file your tax return.

3. Contribute to retirement accounts. Making contributions to tax-advantaged retirement accounts like a traditional IRA or 401(k) is a great way to lower your tax liability even if you don’t plan to itemize your deductions!

4. Harvest gains & losses. If you expect to have capital gains from your investments, selling stocks in a loss position to offset the gains will lower your tax liability. In fact, you can claim excess losses of up to $3,000 to decrease your ordinary income! Timing matters with investment sales and income taxes, so having a year-end strategy can help lower your tax bill.

5. Make last-minute tax moves. Here are a few ideas worth considering:

  • Donate to charity to maximize itemized deductions
  • Make a tax efficient withdrawal from your retirement account if you are over age 59½
  • Take advantage of the annual $15,000 gift-giving limit
  • Delay receipt of income or accelerate expenses for your small business

Understanding your current situation and having a plan will help maximize your tax savings.

Category: Planning

Last Minute Tax Savings…

 

Your Weekly Tax Tip

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Last-Minute Tax-Savings Ideas
Action you can take before time runs out
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Here are five tax saving ideas that can be used by most taxpayers. But act soon, there’s not much time left until our tax year comes to an end.

1 Make late-year charitable donations. Consider making donations with appreciated stock you have owned over one year. You can typically receive the higher value donation without paying capital gain taxes. Also consider non-cash donations of items in good or better condition. But pay attention to your total deductions. With higher standard deductions, you should use your charitable giving to ensure you can maximize your tax savings. This may mean making next year’s donations this year!

2 Make contributions to your qualified retirement plans. Remember there is still time to make contributions to traditional IRAs, SEP IRAs and 401(k) accounts to reduce your taxable income this year. While you’re at it, take a look at next year’s limits and plan to increase your contributions to make next year’s tax obligation even better than this years.

3 Take distributions from your retirement accounts. If you are over 70 1/2 years old you will need to take required minimum distributions. The penalty for not taking minimum distributions is 50%. But if you are over 59 years old you should also be taking distributions from tax deferred accounts in the most tax efficient way possible. This may mean taking some money out, even it you do not quite need it now.

4 Take any final investment gains and losses. Capital losses can be used to net against your capital gains. You can also take up to $3,000 of capital losses in excess of capital gains each year and use it to lower your ordinary income.

5 Consider making any final gifts to dependents. You may provide gifts of up to $15,000 per year per person. Remember all gifts given (birthday, holiday and cash) count towards this total. This can provide a future source of possible investment income for your kids. While the “kiddie tax” may ultimately come into play, this can be avoided by using the gifts to fund a 529 college savings account.

With the new tax rules in place beginning in 2018, tax planning is more important than ever.  You still have time to lower your tax bill, but the clock is ticking.

Category: Planning

Do Not Be A Victim

 

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Receive Copies of Fraudulent Tax Returns
What did thieves try to steal?
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Tax identification theft is becoming all too common. Victims know how frustrating the experience can be. Thankfully, the IRS is willing to help.

The frustration

If you are a victim of IRS identity theft, your first instinct is to find out what was filed and who filed it. In the past, most requests by victims of this theft could not receive this information. The IRS often stonewalls these requests because of active investigations and because it wishes to protect other potential victims’ identification.

There is help

As long as you follow IRS instructions, you are now able to get transcripts of what thieves attempted to do with your tax information. But be forewarned. The IRS may mask or redact information on the fraudulently filed tax return. Its goal is to provide you with enough information to determine how your personal information was used on the tax return without putting other information at risk.

To receive a transcript you must:

  • First, file an identity theft Form 14039, Identity Theft Affidavit
  • Then file Form 4506-F, Identity Theft Victim’s Request for Copy of Fraudulent Tax Return

To be successful in your request, your name and Social Security number (SSN) must be listed as the primary or secondary taxpayer on the fraudulent tax return. Plan on receiving an acknowledgement from the IRS within 30 days and a copy of the transcript within 90 days. Be prepared to have to work through masked or redacted information to determine what was stolen.

Why the stolen information may be important

  • You can see what personal information has been stolen. What has been compromised? Name, address and SSN? Do they have your dependent’s or spouse’s information? Perhaps they also have your income and withholding data. Knowing this will help you plan the extent of data protection you will need.
  • There may be clues as to where the identity theft occurred. Of the information stolen, who had access to it? Did the data breach involving your information happen through the IRS or somewhere else?
  • There may be more tax years impacted than you thought. Request information from the year you first became aware of the identity theft at the IRS. But you may wish to request information from a prior year and from the year following the theft. The IRS has access to up to six years of tax returns. Try to determine whether the theft is ongoing or a one-time occurrence.

The request requires specific information. You can read more about it in the IRS’s Instructions for Requesting Copy of Fraudulent Returns.

Thankfully, the IRS is now more helpful in sharing fraudulent information to allow victims to take action to protect themselves

GIVE THE RIGHT WAY

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
Donating to Charities? Do it RIGHT!
Donation basics to ensure a tax deduction
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Donating to charity not only helps others, it can reduce your tax bill — but only if the charity qualifies as a tax-exempt organization.

Checking for qualified status

If you plan on itemizing your deductions on your tax return, make sure the organization you’re donating to is designated by the IRS as a 501(c)(3) organization in good standing.

You can find a list qualified 501(c)(3) organizations on the IRS website. Remember, even last year’s qualified organizations could lose their non-profit status if they do not submit their annual tax filing!

Is it a good charity?

Ensuring a tax-exempt status is not your only step. You should also conduct research on your charitable organization. There are many websites that evaluate organizations, how they spend their funds, and how efficient your donation is being used. So check out your charities on sites such as Charity NavigatorCharity Watch and BBB Wise Giving Alliance.

Get your documentation right

Here are a few other key requirements if you want to deduct your charitable donations:

  • Keep good records. The tax law imposes strict recordkeeping requirements. Notably, for monetary gifts of $250 or more, you must obtain a written acknowledgment from the charity (with specifics) before you file your return.
  • Understand rules around quid pro contributions. If you receive a benefit in return for your donation (e.g., dinner at a fundraiser), your deduction is limited to the difference between the donation amount and the value of the benefit. Obtain substantiation from the charity.
  • Know the annual limit. Under the recent legislation, the annual deduction for monetary contributions is currently limited to 60% of your adjusted gross income (AGI), up from 50%. Stay below this threshold.
  • Follow property rules. Besides a 30%-of-AGI limit for gifts of appreciated property, other special rules may apply. For instance, you must ensure that the property is used to further the 501(c)(3) organization’s tax-exempt mission. If you donate property valued at more than $5,000, obtain an independent appraisal.

You may be able to reduce your tax liability by boosting your donations late in the year and pushing your total itemized deductions amount over the standard deduction threshold ($12,000 single/$24,000 joint).

PAY ZERO TAXES, HOW?

 

Your Weekly Tax Tip

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Cash in on 0% Capital Gains Tax Rate
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While the maximum capital gain tax rate can be as high as 23.8 percent, most taxpayers pay 15 percent. But there is the possibility to have your capital gains go tax-free; zero percent! In fact, this tax break has been around for more than a decade and comes into play more often than you may think. Here is what you should know:

Qualifying for the 0% capital gains rate

You qualify for preferential long-term gain treatment if you sell stocks, bonds or real estate (and other capital assets) you’ve owned longer than a year.

For 2019, the zero percent rate applies to long-term capital gains for single taxpayers with taxable income up to $39,375 and married filing joint taxpayers up to $78,750. This often applies if you’re having a low income tax year due to:

  • Temporary job loss
  • A tax loss passed through to you from an S corporation or partnership
  • Income fluctuation for a commission-based job
  • Retirement
  • Moving to part-time employment

Awareness is the key

While you may not typically have the zero capital gain tax rate available to you, it is important to note when it comes into play.

Here’s an example: Adam and Eve Johnson recently retire. They have a number of mutual funds they’ve owned for years and have retirement savings accounts. Their current income is $58,700. Should they withdraw money from a retirement account or sell some of their mutual funds? Because they’re aware of the zero percent capital gains, they decide to sell mutual funds with long-term capital gains of $20,000 this year to get the money tax free!

Consider your year-end tax moves

So, keep the zero percent capital gains rate in mind as the year winds down. Know your projected income for the year and depending on your situation, you might realize capital gains that are subject to no or lower tax rates. Remember other factors often come into play, including the taxability of Social Security Benefits, so call if you would like a review of your situation.

PROTECT YOURSELF!

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
IRS Expands ID Protection Program
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The IRS is expanding a pilot program that uses Identity Protection Personal Information Numbers (IP PINs) to provide an extra layer of security for taxpayers. The program can be used by residents of the District of Columbia, Florida, Georgia, California, Delaware, Illinois, Maryland, Michigan, Nevada and Rhode Island. Appropriately, these states have a high incidence of ID theft.

IP PIN program details

Unless you are a victim of IRS identity theft, participation in this program is voluntary. You can opt-in to receive an IP PIN if you live in one of the included states and you filed a tax return last year.

So why opt-in? The IRS uses the IP PIN to better verify the taxpayer’s identity. It can prevent clever hackers from using your Social Security number to file fraudulent returns or access returns you’ve already filed.

Keep in mind that if you choose to get an IP PIN, you’ll need to use an IP PIN for all future filings. You can file your return as you normally would if you decide not to participate in the pilot program.

Getting your IP PIN

You can use special IRS tools to obtain an IP PIN and verify your identity through a two-factor authentication process. Go to the Get an IP PIN page on the IRS website to get started.

A new IP PIN is generated for every filing season. It may be retrieved mid-January by logging into your account.

Have you experienced ID theft? The IRS will continue to issue new IP PINs to taxpayers who have already been victimized by tax-related identity theft.

It’s expected that the IRS will open up the program to taxpayers nationwide once it works out all the kinks. Look forward to more developments.

Back to School

 

Your Weekly Tax Tip

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Phone: (323) 292-5407
Tax Breaks for Adult Students
These benefits are not just for kids!
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Kids aren’t the only ones heading back to school this fall. Many adults are also taking courses to pursue a new career or improve their current job skills. Fortunately, adult students may qualify for several tax breaks. Here are four possible options:

  1. American Opportunity Tax Credit (AOTC). The AOTC is one of two credits for qualifying higher education expenses. The maximum credit of $2,500 is phased out based on income. To qualify, you must be enrolled at least half-time and not have finished four years of higher education. The credit does not rule out your eligibility because of age.
  2. Lifetime Learning Credit. If you can’t claim the AOTC, you may be able to use the lifetime learning credit (because you can generally only claim one credit in a tax year). The maximum lifetime learning credit is $2,000, as opposed to $2,500 for the AOTC, and there is an income phaseout that occurs at lower income levels than the AOTC. But you don’t have to be enrolled half-time and the credit isn’t restricted to four years of study. It’s even available if you take just one class.

  3. Student loan interest deduction. Do you need to borrow money to pay for schooling? If you qualify, you can deduct up to $2,500 of your annual student loan interest on your tax return. The deduction is subject to a phaseout based on income. Keep in mind that to claim this deduction, you need to be the one who is repaying the loan.
  4. Educational assistance plans. Perhaps the best way to go back to school is to have your employer pay for it. With a written educational assistance plan that meets all the tax law requirements, the first $5,250 of education expenses paid by your employer is tax-free to employees and deductible by the employer. The coursework doesn’t even have to be job-related.

Education tax breaks aren’t just for kids. Each of these educational tax saving opportunities is filled with additional rules and requirements. Please call for a review of your situation.